Likewise, new cars are almost never worth as much after you buy them. While a loan for a car used for commuting to work may be considered a good investment, the loan is typically considered "bad debt".

Bad Debts and Collections

In the financial world, a bad debt is any debt that is no longer expected to be collected.
Bad debts apply to debtors who are reluctant to pay their debts.

If you owe a debt that is considered bad, it will typically be handed over to a collections agency, who are professionals at collecting on bad debts.

Creditors who originate debts that have gone bad typically sell those debts to collection agencies, who specialize in getting debtors to pay. Collections agencies also may raise the interest rate or the total amount due in order to profit off of debtors.

Collections agencies may not offer the customer service niceties that many originating creditors use, as they know that the debtor is reluctant to repay the debt. Dealing with creditors is hard, but dealing with collection agencies may be even more difficult.

If you are facing collections on a bad debt and unable to pay, one option is filing bankruptcy.

By filing for bankruptcy, you may enact the automatic stay, a court order that prevents collections efforts. All creditors must adhere to the automatic stay, even if they have purchased a bad debt.